Crude rallies sharply as data brighten economic outlook

U.S. crude oil prices climbed more than 2 percent on Thursday to the highest level in 10 days after better-than-expected employment and manufacturing data brightened the economic outlook.

The number of Americans filing new claims for unemployment benefits fell to a 5½-year low last week, the Labor Department said, and a closely watched index of U.S. manufacturing activity was at its highest level in two years.

U.S. stock markets jumped, with the S&P 500 index topping the 1,700 level for the first time ever.

China's official purchasing manager's index also came in higher than expected and a survey showed euro zone manufacturing returned to growth in July, suggesting the region may pull out of recession this quarter.

U.S. crude outpaced Brent, adding nearly $3 to trade around $108. Brent crude gained more than $1 to $109 a barrel and hit $109.45 intraday, the highest since July 16. It ended July with the largest monthly percentage gain since August 2012.

U.S. gasoline futures were also stronger, climbing 4 cents to reach $3.04 a gallon. Natural gas, however, plunged to a five-month low after the U.S. Energy Information Administration said gas stockpiles rose by more than analysts had expected.

"The main reason is better-than-expected data from China and also the fact that the Fed did not give any hint about ceasing stimulus," said Carsten Fritsch, analyst at Commerzbank in Frankfurt.

The U.S. central bank on Wednesday said the economy continued to recover but was still in need of support, offering no sign it is planning to curb its bond buying at its next meeting in September. That stimulus has broadly underpinned commodity prices.

Crude oil inventories up 431,000 barrels

CNBC's Bertha Coombs breaks down the latest supply numbers in oil and gas.

Concern over supplies from Libya, Iraq and Nigeria was also underpinning prices. The disruptions helped trim OPEC output to a four-month low in July, according to a Reuters survey published on Wednesday.

In Libya, protests at oilfields and terminals cut average supply to 1.15 million barrels per day in July, according to the survey, down 150,000 bpd from June. Libya's oil minister said output had fallen 330,000 bpd from 1.4 million bpd on Monday.

Iraq's production has also come under downward pressure as Sunni insurgents are targeting its northern pipeline, while technical problems are curbing output in the south.

Europe's biggest oil company, Royal Dutch Shell, said on Thursday a surge in oil theft in Nigeria contributed to lower second-quarter profit, while Italy's Eni cut its production target and highlighted Nigerian outages.

Lending further support, oil inventories at the Cushing, Okla., delivery point for the U.S. crude contract fell for a fifth straight week, government data showed on Wednesday, although overall stocks increased.